Global forecasters have hiked their targets for the Canadian dollar from a month ago, but the commodity-linked currency is still expected to trade near parity with the US dollar for much of 2012, a Reuters poll showed.
The currency has hovered in a narrow range near equal value against its US counterpart since late January. It is expected to stay stuck around the one-for-one mark for at least the next six months before firming slightly 12 months from now.
The median forecast in a survey of 51 global foreign exchange strategists released on Wednesday showed the Canadian dollar at exactly $1.00 in one, three and six months from now. In a year, the currency is expected to strengthen slightly to C$0.99 versus the US dollar, or $1.01.
By comparison, February's poll had Canada's dollar trading at C$1.01 to the US dollar, or 99.01 US cents, in one and six months from now, and parity in January 2013.
"We'll obviously have some inter-week, inter-month volatility ... however parity certainly feels like a level where the market is quite comfortable," said Camilla Sutton, chief currency strategist at Scotia Capital.
On Wednesday, the currency slipped to C$1.0010, or 99.90 US cents, as lingering uncertainty about Europe's debt crisis still weighed on riskier assets.
But Sutton said factors working in the Canadian dollar's favour are the country's triple-A debt rating, oil prices over $100 a barrel, and a stable growth outlook for Canada, the United States and China. The Bank of Canada is also expected to hike interest rates before the US Federal Reserve, according to a recent Reuters poll, though no move is expected until next year.
Canada's main policy rate is now at 1 percent, while US interest rates are near zero, which has helped attract international capital flows. A widening of that rate differential in 2013 could boost the Canadian dollar even further.
"Given that it really looks as if most central banks are going to be going nowhere fast for a prolonged period of time, currencies are going to have a difficult time setting a major direction themselves, so it could be a lot of to-ing and fro-ing with not much net movement over the next year," said Douglas Porter, deputy chief economist at BMO Capital Markets.
The Canadian dollar has been a mid-performer among major currencies, up almost 2 percent year to date, benefiting alongside other currencies at the expense of broadly weaker US dollar due to the extensive amounts of liquidity provided by global central banks, added Scotia's Sutton.
Analysts say developments out of Europe - including heightened fears this week that Greece may not meet a looming debt restructuring deadline - will likely cause some near-term turbulence for risk assets including the Canadian dollar. "Basically we're expecting at least one more significant downdraft in financial markets from the European situation," noted BMO's Porter.
"Looking further out, we believe the US recovery will be even more firmly grounded and Europe will recede as a primary driver of the markets and the Canadian dollar will reassert itself."
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